Morningstar

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Equity Bottom-Up

No-moat-rated Metcash reported a broadly in line fiscal 2019 financial result, with underlying group EBIT only 2% short of our expectations. We maintain our capital expenditures and operating profit estimates for the group. Nevertheless, our fair value estimate increases by 4% to AUD 2.50 due to the time value of money. Leading up to the full fiscal year 2019 results, investors were clearly anticipating better numbers. Metcash’s stock price declined by 10% on the announcement but shares still…

No-moat rated Metcash’s network of independent grocers continues to lose market share, in line with our expectations. Stronger-than-expected liquor sales were offset by lower hardware sales in the first half of fiscal 2019, and our fullyear revenue estimate for the group remains virtually unchanged. We also maintain our EBIT margin estimates and reiterate our AUD 2.40 fair value estimate. Despite the retreat in the share price following the results announcement, shares screen as slightly…

Coinciding with the release of its results on June 25, 2018, no-moat Metcash announced an off-market buyback of AUD 125 million.
The buyback price will be between 8% and 14% below the five-day volume-weighted average price, or VWAP, to Aug. 10, 2018. We expect the buyback to be virtually valueneutral to Metcash, and we retain our AUD 2.40 fair value estimate. However, with much of the buyback price comprising a fully franked dividend, there could be material benefits to Australian tax payers who…

Shares in no-moat Metcash remain overvalued following its full-year results, which were broadly in line with our estimates, and we maintain our long-term outlook for the firm's three individual business units: food, liquor, and hardware. Metcash announced an off-market buyback of AUD 125 million following a review of its capital management options, which was kicked off after CEO Jeff Adams took the helm in December. The final buyback price is yet to be determined, but on our preliminary estimate…

No-moat Metcash’s impairments of its Supermarket and Convenience assets reflects the confirmed departure of Drakes’ South Australian supermarkets from the supply network in fiscal 2020, but also the continuing weakness in Western Australia. These are, at least partially, symptoms of the aggressive expansion of Aldi in those states, with the German discounter only just entering in 2016. The increased competition is here to stay, and we expect Metcash’s IGA network, and to a lesser degree Coles…

Australia

Metcash Limited is a marketing and distribution company operating in the food and other consumer goods sectors.  The Company operates distribution centers serving grocery products for independent retail grocery stores, liquor distribution centers and cash and carry warehouses which serve retailers and businesses in the grocery, liquor, food services and convenience stores.

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